Books, Business Models, Commerce, Economics, Marketing

Everybody Wants a Netflix for Books

Netflix Doodle

Netflix Doodle (Photo credit: heyitsgarrett)

Some things seem self-evident–until they are not. One self-evident notion is that just as we have a Spotify and a Pandora for music, just as we have a Netflix for video, we should indeed have something akin to these services for books. It seems obvious to many people that only the sluggishness if not outright stupidity of publishers would get in the way of the inevitable.

Of course, (this argument goes) no one should ever underestimate how stupid publishers can be. With some notable exceptions (e.g., HarperCollins) they remain skeptical about putting all their titles into aggregations controlled by third parties–which set the prices for the services and pay the publishers out of their meager revenue. Personally, I marvel at Pandora. I am a subscriber–for a whopping $36 a year–and stream Pandora approximately 8-10 hours a day, every day. I am listening to it now as I write this post (the Cold War Kids station). I don’t know how many songs I listen to in a year, but it must be in the thousands. How much does that come to per song? On the other hand, Pandora’s listeners are encouraged to purchase music they like. I have not purchased any music in years, and there is not a chance in the world that I will ever go to a CWK concert. I will enjoy Pandora while it lasts, but it does get at the point that record labels, movie studios, and publishers do not exist to make their users happy but to make their shareholders happy.  What may appear to be sluggishness or lack of vision on the part of publishers may in fact be a shrewd understanding of their own interests.

Before we assess the appeal of a Netflix for books, we should spend a moment describing just what Netflix is, as there seems to be some confusion about this. Netflix has 2 services and has hinted about the possibility of a third. The first is the original service, which consists of ordering DVDs from a Web site, which are then shipped by mail to consumers. This service still operates today and has about 7 million subscribers. I am among them.  Netflix carries every DVD and Blu-Ray disk that is available, and a tour through the Netflix catalogue is one of the world’s great wonders. I just now searched for the films of Rainer Werner Fassbinder, whose films I eagerly traveled into New York to see (at great expense) in the 1980s. Most of them are now available on Netflix, all for a modest monthly subscription. I will watch all of them again, along with the films of Fellini, Herzog, Antonioni, Von Stroheim, Billy Wilder, Woody Allen, and on and on and on. Netflix’s DVD service is comprehensive because virtually every movie has been put on a DVD, which Netflix can purchase directly from the producer or studio or at Wal-mart like anyone else.

But is it truly comprehensive? Well, no. Movie studios don’t release DVDs at the same time films appear in theaters; the DVD or Blu-Ray trails the feature film release by 6 months to a year. People who simply must see the latest feature film releases will be disappointed in this service. For them it’s standing on line at the theater or nothing.

It’s worth noting that the Netflix DVD service is a creature of a particular time and place. Netflix came into existence just as the DVD format was launched, replacing the videotape, which would have been too expensive to mail and subject to rapid wear and tear. And it came about before consumer broadband services were widespread, before there was a YouTube, that most astonishing technical achievement, which ushered in the age of streaming video. A few years earlier or a few years later and there never would have been a Netflix.

The second Netflix service is the one that is taking the Internet by storm, its streaming video service, where for an incredibly low price of about $8 a month, you can watch an unlimited number of videos. There is a catch, however, in that unlike the DVD service, the streaming service is not and never will be anything close to comprehensive, even if you allow for a lag time of a year. This is because every streaming movie or TV show must be licensed from the producer, and some producers do not and will not license their content to Netflix. Take the immensely popular Game of Thrones, for example. The DVDs are available on Netflix, but the streaming video is held closely by the producer, HBO. Were HBO to license Game Of Thrones to Netflix, some people would happily cancel their HBO subscriptions in favor of the technically more proficient and much less expensive Netflix.

I said that there is a hint of a third Netflix service. This is conjecture on my part, but when Netflix announced a licensing deal with Disney a while back, the wording of the press release seemed to suggest that some Disney movies would be made available not through streaming but on demand, a marketing model now being used by Amazon and Vudu among others. It’s fairly easy to forecast how the video business will look over the next 3-5 years. The comprehensive DVD business, with its built-in lag time,  will continue to decline (boo and hiss!), overtaken by all-you-can-eat streaming services that consist mostly of older and second-tier content that is bundled in aggregations with a handful of stellar first-run offerings (e.g., House of Cards) acquired to bring in new subscribers. Alongside these aggregations will be the on-demand world of first-run movies and the finest videos, all titles that will eventually decline in value and then be moved over to streaming bundles. There will be some exceptions, of course, for films that are recognizable commercial classics: they will only be sold on demand.

So when people say they want a Netflix for books, which of these 3 services are they talking about? It’s my distinct impression that most people confuse Netflix #1 with Netflix #2, and they forget about the lag time for the DVDs. They want a comprehensive and fully up-to-date library for a low monthly price. This will hot happen for movies and video and it will not happen for books.

This does not mean that there will not be book aggregations. There already are. What it means is that aggregations are simply another distribution channel for content and have to be analyzed like any other. If an aggregation is comprehensive, it will cannibalize sales from other channels. Hence no aggregation can be comprehensive. If the aggregation releases titles too quickly, even if the aggregation is less than comprehensive, it could interfere with other channels, which interferes with the media strategy known as “windowing,” which releases properties along a planned-out timeline the better to maximize returns. An aggregation, in other words, is a limited collection of books placed on the market precisely when the value of those titles is not greater in other channels.

There is an exception to this, however, and it is an important one. When a single publisher is able to amass a sufficient collection in one area and has the means to sell things directly-to-consumers (D2C), that could be a very big win for both the publisher and the consumer. I have discussed this on the Kitchen before with regard to Penguin Classics and won’t repeat the argument here.  Suffice it to say that a publisher with a commanding position in a particular field (say, anthropology or computational biology) could sell subscriptions to end-users and effectively soak up all the revenue for that particular subject. This would lead other publishers in that area to cut back on their programs, strengthening further the publisher with the leading position. The key here is the combination of D2C marketing and market dominance in a particular subject category.

So let’s ask the question the way it should be asked, not “why isn’t there a Netflix for books?” but how can I strategically modify my program to give me a compelling advantage over my competition, thereby yielding strong financial returns? Step one: focus on fewer categories, and perhaps only one. Step two: develop direct relationships with end-users. That’s what the Internet is telling us to do. Let’s listen.

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About Joseph Esposito

I am a management consultant working primarily in the world of digital media, software, and publishing. My clients include both for-profits and not-for-profits. A good deal of my activity concerns research publishing, especially when the matter at issue has to do with the migration to digital services from a print background. Prior to setting up my consulting business, I served as CEO of three companies (Encyclopaedia Britannica, Tribal Voice, and SRI Consulting), all of which I led to successful exits. Typically I work on strategy issues, advising CEOs and Boards of Directors on direction; I also have managed a number of sticky turnarounds. Among other things, I have been the recipient of grants from the Mellon, MacArthur, and Hewlett Foundations, all concerning research into new aspects of publishing.

Discussion

38 thoughts on “Everybody Wants a Netflix for Books

  1. Interesting article.

    I’m not sure that Netflix for books is not what I’m wanting, although it sounds intriguing.

    At this point, I’d like the ability to loan books to other people. I purchased the book and as long as I’m not selling it for gain, I should be able to loan my copy out as I see fit – not just once for the life of the book.

    Publishers need to wake up and realize they are responsible for creating pent up demand in a market that will find ways to satisfy that demand.

    Posted by jdb | Mar 18, 2014, 6:39 am
  2. Every time I read Netflix for books I just think: It’s called a Library and we’ve had them for millennium.

    Posted by Mathias Klang | Mar 18, 2014, 10:36 am
    • Yes. Exactly. Author says he was CEO of Encyc Britt and never heard of a library? (now I need really need a cocktail…)

      Posted by goodolmccain | Mar 18, 2014, 11:32 am
      • Not sure what to make of the John McCain image. In any event, the comment reveals that the commenter did not read the post. Netflix is a D2C business. From a publisher’s point of view, libraries are D2B. There is a world of difference between those two models. And as for the cheap shot about Britannica (which the commenter misspells in the abbreviation), library sales were well under 1% of sales volume. Britannica was a D2C company.

        Posted by Joseph Esposito | Mar 18, 2014, 11:35 am
        • Netflix is not a D2C business. They are a third party company that buys DVDs and BluRays (or the right to stream films and TV shows) from studios and then does business with consumers. It would be D2C if it were Disney mailing you a copy of “Frozen” for rental, but it’s not. It’s Netflix.

          Posted by Michael Giltz | Mar 21, 2014, 11:58 am
  3. You make a good point about the profit margins for rights holders in the Spotify/Pandora/Netflix arena.

    Surely there has to be a way to marry some of the great things about those services (their awesome and simple UXs, array of choices, etc) while still being able to protect the earnings of publishers/copyright holders. Publishers just haven’t found it yet.

    Posted by skonkiel | Mar 18, 2014, 10:40 am
  4. There is a netflix for books: Oyster.

    Posted by rs351 | Mar 18, 2014, 10:41 am
    • This is incorrect. Oyster is not comprehensive.

      Posted by Joseph Esposito | Mar 18, 2014, 10:43 am
      • Neither is Netflix.

        Posted by Mark Nuback | Mar 18, 2014, 11:00 am
        • That was precisely the point of the original post, that Netflix is being used as a metaphor for something that it is not.

          Posted by Joseph Esposito | Mar 18, 2014, 11:26 am
          • Good point Joe. It seems this misleading metaphor creates a confusion, where “Netflix” becomes an ambiguous concept. The real Netflix and the metaphorical one are very different.

            Posted by David Wojick | Mar 19, 2014, 7:33 am
  5. I’m wondering how this applies to scholarly books? We have aggregations like UPeC and JSTOR which, I believe, contain new books but are not fully comprehensive. They service academic libraries but, by doing so, displace the need for any scholar affiliated with a university whose library subscribes to have a Netflix-type individual subscription. One downside for publishers participating in these services is possible loss of sales of paperbacks for course use if they allow all of their new titles to be included in these aggregations. As for concentrated lists helping publishers to beat out the competition, we already have examples of that in the print world with, for example, MIT Press virtually cornering the market on books in cognitive science.

    Posted by Sandy Thatcher | Mar 18, 2014, 11:46 am
  6. Amazon Prime.

    Posted by Joan Starr | Mar 18, 2014, 12:43 pm
    • Amazon Prime is not comprehensive. The terms of this discussion were clearly defined in the post.

      Posted by Joseph Esposito | Mar 18, 2014, 12:55 pm
    • Interesting piece on Amazon Prime here:
      http://www.marco.org/2014/03/15/worse

      Amazon also bundled the Kindle Owners’ Lending Library into Prime, which lets Prime-enrolled Kindle owners borrow one free book per month from an opt-in catalog that apparently sucks and is mostly filled with scammy bulk-published ebooks. It appears that Amazon pays an arbitrary flat rate of their choosing for the entire catalog and just splits it up between publishers based on usage (which is why the scammy ebook authors want you to pick theirs). Amazon is historically very cheap to authors with ebook payment rates, and they spin the Lending Library primarily as a publicity benefit (“exposure!”) for authors, so I wouldn’t expect this to be a substantial cost to them.

      Posted by David Crotty | Mar 18, 2014, 1:30 pm
  7. Joseph, interesting article, and nice layout of the differing aspects of Netflix’s service. And you may be right, a few years earlier or later, and who knows if Netflix would have even worked.

    But that’s true of most successful businesses. They supply (or supplied) a need at the time.

    Where I get a little confused with your thesis though, is why would a subscription service, Scribd and Oyster among several, have to concentrate on “one category”? Or am I missing what’s meant by that?

    For example, both book subscription services above have books. Is that the one category? It doesn’t seem it would mean, say, mysteries vs romance. I have subscriptions to both, and would find too narrow an offering not useful for me. I like variety, lots of choices, and a set price.

    Anyway, at least you’re addressing the issue. (And I’m in a let’s-try-it mode myself.)

    Most discussions revolving around price points, what to offer free, sale offers, carefully avoid thinking about what the subscription model means for a lot of those strategies.

    It’s like watching a TV show, seeing characters using burner phones to avoid detection, yet, in other shows, like The Good Wife, we also are learning the NSA can listen in on those too. So what does that do to future plot and story lines and their believability. The same applies, I believe, to discussions of how to market books that don’t include the subscription model.

    And maybe your point isn’t even about that entirely, and if I’ve missed that, my apologies.

    Best wishes, looking fwd to reading more of your thoughts on this.

    Adan

    Posted by Felipe Adan Lerma | Mar 19, 2014, 7:32 am
  8. This is interesting. I am someone who gets overwhelmed by too much choice. Give me the option to access thousands of films via many routes and I’ll probably read instead. Here in the UK I currently have the cinema, a couple of different pay on demand options via Virgin Media (our TV provider), all of the TV channels, a Sky package, Netflix streaming, Amazon Prime and the possibility to rent DVDs from the local library. Until recently we had Lovefilm DVD rental too but stopped when they stopped offering games.

    It’s a lot of choice but I regularly can’t find what I want, for the reasons outlined well above, nothing can be comprehensive. Others in my family don’t bother looking at these legitimate routes, they just find some way to stream what they want on the laptop.

    I think it is impossible to please all the time. I want exactly what I want when I want it AND I want serendipity.

    For me to see any service as must-have, I’d need to know it’s the most comprehensive offering and it would need to be fast and simple to navigate. I’ve long thought it would be great if an academic library could subscribe to all of a publisher’s content or all in a subject area regardless of format, in a way that plays nicely with whichever delivery mechanism the library chooses to use.

    For the commercial reasons outlined clearly in the post, it won’t be possible to subscribe to all content across publishers any time soon but individual publishers could make it easier than now perhaps. It would mean taking a hit on profits though for non-proprietary journal material where royalties influence price. There should be some movement though. Forcing libraries into a position where content purchased has restrictions and requires use of endlessly growing providers and platforms is not good for business or research and teaching.

    Unsatisfied lecturers make their own materials to teach with and researchers find non-publisher tools to share what they need and bypass the library.

    I wonder if there are examples of any publisher embracing a simpler more comprehensive model yet? If I was a librarian, I’d be realistic about not being able to get all anthropology content, but I’d expect to be able to get all anthropology content from Publisher X.

    Posted by berniefolan | Mar 19, 2014, 9:02 am
  9. An interesting subject and one that will surely garner a fierce dialogue for and against. If easier access to literature can be evolved for younger generations, I feel it is a good thing. They love technology so we should utilize it. I will re-blog this post today on my re-blog Wednesday feature.
    Thank you

    Posted by mandyevebarnett | Mar 19, 2014, 12:43 pm
  10. I think you’ve got a great idea there with the Penguin Classics suggestion. But genre fiction backlist is another place where it seems a subscription model would work nicely. Perhaps Tor/Forge or Harlequin could start such a service, and like Netflix, it could have various levels of access. For example, a flat fee could provide access to the backlist, but a premium membership might allow the user to subscribe to a favorite writer and then automatically get all new content that author produces for that publisher, maybe even subscriber exclusive content.

    On a related note, I just came across a niche publisher (translations) that actually offers a print subscription. For $135 you’ll get a copy shipped upon publication of each of the 10 titles they publish a year. You can also subscribe to just a half a year, 5 books, or for up to 5 years.

    http://archipelagobooks.org/product/subscription/

    Posted by Tony Sanfilippo | Mar 19, 2014, 4:01 pm
  11. Interesting column. As you hint, Pandora is great for Pandora but terrible for musicians and merely OK for record companies in terms of profit. So publishers are wise to avoid rushing in and signing up with the first service that appears or indeed any service. But your suggestion that what they need to do is focus on fewer categories or just one really only applies to very narrow categories of specialized interest and smaller publishers. How would that apply to, say, Random House Penguin? Or a genre like mystery or science fiction or romance? No one can dominate a category like mystery. And even if Random House Penguin offered a subscription to all its titles, that doesn’t really work either — no one ever says, gee, I’d really like to read a Random House book today, which is why bookstores devoted to one publisher never worked either. TOR is great but I never say, boy, I’d really like to read a TOR fantasy right now. You might be able to dominate in a very narrow field but I’m not sure how areas of general interest that are the bread and butter of the Big Five and the remaining bookstore chains apply to this model.

    Posted by Michael Giltz | Mar 21, 2014, 12:08 pm
  12. Publishers and “shrewd understanding” are not terms I’d pair. I’d be more convinced if they seemed to be doing ANYTHING that involved tech beyond community sites and ebooks.

    That said, I think Scribd and Oyster would be more successful if you couldn’t basically use most libraries for the same service for free now. It’s possible I’m missing something in their business model, but I can borrow essentially unlimited ebooks from my local library.

    Posted by onibabamama | Mar 27, 2014, 10:19 am

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The mission of the Society for Scholarly Publishing (SSP) is "[t]o advance scholarly publishing and communication, and the professional development of its members through education, collaboration, and networking." SSP established The Scholarly Kitchen blog in February 2008 to keep SSP members and interested parties aware of new developments in publishing.
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